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Students caught in debt trap after OSAP overpayments

Ontario’s post-secondary students have been overpaid more than $700 million in financial aid over a five-year period, the Star has learned.

Two major reasons: under-reporting of either the student’s income or the parents’, and early withdrawal from studies. Annually, amounts overpaid to students have jumped from $139 million in 2010 to $179 million in 2014.

Former computer science student Josh Tate says he was “left scrambling” to earn enough money to repay a second overpayment he incurred accidentally, by boosting his income with extra summer job shifts.

He says he learned of the problem long after the money had been spent. Barred from applying for more aid until the overpayment was reimbursed, he ended up having to take a semester off.

Gabrielle Ross-Marquette, of the Canadian Federation of Students-Ontario, said the Star’s data highlights a “systemic problem.”

OSAP is innately flawed, she added, because it “expects students to be fortune tellers” and forces them to guess their income and other financial information well before they’ve earned it.

Kyle Prevost, co-author of More Money for Beer and Textbooks — marketed as a “personal finance book that an 18-year-old Canadian might actually open” — acknowledged that while the responsibility rests on a student to accurately report income, Ontario’s student loan program is a “brutally run hodgepodge mess.”

Prevost suggested the current process “incentivizes kids to lie” and recalled the stories of peers from his post-secondary student days “who blatantly lied about their parents’ income … in order to get more student loan money.”

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Students who received overpayments from 2009 to 2014 were provided, on average, roughly $2,100 extra per school year, according to data obtained by the Star.

“It’s not the student’s fault they were incorrectly assessed by the OSAP program when there are so many things that can change,” Ross-Marquette said. “To put this burden on Ontario students when they already have to pay the highest tuition fees in Canada is just adding another problem to their plate.”

“When students receive more than they are entitled to, OSAP makes every effort to recoup these funds from future payments, or in loan repayments,” said Tanya Blazina, a spokesperson for the Ministry of Training, Colleges and Universities.

She said Ontario “proudly invests in one of the most generous student financial assistance programs in Canada,” and processes are in place to ensure that overpayments are resolved quickly and effectively.

“What’s important to understand is that of these overpayments, nearly 90 per cent will likely be recovered, and the unrecoverable overpayments represent only about half of one per cent of OSAP’s annual funding,” Blazina said. “We will continue to work closely with students to help them understand the best way to manage overpayments and limit any challenges associated with it.”

Under the current system, a student’s first overpayment triggers a warning, and it’s expected to be paid back with the rest of their loans once they leave school.

But if a student receives a second overpayment, it must be repaid before the student can receive any future OSAP aid.

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For Tate, that second strike was enough to derail his academic plans.

He claims OSAP suspended him from applying for future aid over a second overpayment worth several hundred dollars. Just as it had the first time he inadvertently borrowed beyond his means, the mailed notice arrived long after the money had been spent.

With tuition deadlines looming, Tate said, it was tough to repay the funds.

“I tried to work as much as I could to get everything paid for in time,” he said. “I got fairly close, too, but then I realized I just wouldn’t have enough, after the repayment, to still go to school after food expenses, rent and a transit pass.”

To avoid a future incident, Tate took a semester off to work full-time. This past December, he finally obtained his computer science diploma at Algonquin College in Ottawa.

The new graduate now lives in North York, working full-time as a software engineer, albeit saddled with just under $20,000 in student debt.

While Tate admits he made a couple of honest mistakes, he believes his punishment was an example of how the system “works against students.”

“I definitely underestimated (my income), but it’s because I ended up working more hours in the summer,” he said of his former job in retail, where he often took on extra shifts if a co-worker called in sick. “Maybe I should have estimated a higher income, but I didn’t want to write down a certain amount of money when I could have ended up losing my job.

“Unless you are specifically calculating every paycheque, then how are you going to calculate that?”

Speaking generally, a ministry spokesperson said there are “hardship” reviews, in which students can make the case that their overpayment was inadvertent and that a restriction or immediate repayment would be a substantial burden. Tate said he was never informed that option existed.

A ministry employee maintained there are no losses associated with the overpayments. Should a student loan borrower default, they explained, the government will pursue their outstanding balance “indefinitely.”

The practice of “excessive loan funding” was flagged as an issue to the government in 2003, the year OSAP was last audited by the Auditor General. The resulting report raised concerns that taxpayers were footing the bill for interest that accrues on overpayments while the student is enrolled in school.

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